S&P 500 and Nasdaq Composite Extend Gains, 10-year Treasury Yield Approach 5-month Low

Barry Adams
18 Dec, 2023
New York City

U.S. market indexes advanced in Monday's trading, and Treasury yields hovered near 5-month lows.

U.S. benchmark indexes traded higher and extended their gains from the previous week, despite policymakers stressing caution against rate-cut optimism in the near future.

The S&P 500 index and the Nasdaq Composite advanced more than 0.5% despite cautious comments from policymakers across the Atlantic on rate outlooks.

Policymakers ramped up comments to push back market enthusiasm about possible rate cuts as early as March 2024 and stressed that inflation is still too high and talks of rate cuts are premature.

Federal Reserve Bank of Chicago president Austan Goolsbee said in an interview with CBS on Sunday that it is too early to declare victory over inflation and that interest rate decisions would depend on incoming data.

Investors have stepped up bidding for stocks, and the broader S&P 500 index is up 3.3% in December, and the Nasdaq is ahead by 4.1%.

Market sentiment was bolstered last week after the Federal Reserve suggested that three rate cuts totaling 75 basis points are likely in 2024.

Despite the pushback from policymakers on Friday and over the weekend, market enthusiasm for stocks pushed benchmark indexes higher.

Cooling inflation, slowing but steady economic growth, and higher-than-expected job gains are expected to contribute to consumer spending resilience and corporate earnings growth.

 

U.S. Indexes and Yields

The S&P 500 index gained 0.5% to 4,743.75, and the Nasdaq Composite increased 0.5% to 14,892.75.

The yield on 2-year Treasury notes increased to 4.43%, 10-year Treasury notes inched lower to 3.90%, and 30-year Treasury bonds eased to 4.01%.

Crude oil increased $1.70 to $73.13 a barrel, and natural gas prices increased 8 cents to $2.57 a thermal unit.

Gold increased $3.30 to $2,021.98 an ounce and extended gains for the third day in a row after the dollar declined following the Fed's rate decision and announcement to cut rates several times over the next two years.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 102.57 and extended the previous week's loss of 1.4% and the loss of 0.9% in the year so far.

 

U.S. Stock Movers

U.S. Steel Corporation surged 28.2% to $50.33 after the steelmaker accepted the $55 per share offer from Japan-based Nippon Steel in cash.

The offer values the steel company at $14.9 billion in enterprise value, and the deal is expected to close in the second or third quarter of 2024.

Southwest Airlines declined 0.4% to $28.90, and the company reached a $140 million agreement, including a $35 million fine.

The fourth-largest U.S. airline by revenue settled a federal investigation for thousands of flight cancellations and stranding 2 million passengers after heavy snowstorms in Denver and Chicago in December 2022.

The U.S. Department of Transportation said the total charges are the largest it has ever imposed on an airline for violating consumer protection laws.

Before the government's assessment, Southwest said that the reservation system meltdown cost the airline about $1.1 billion in refunds, reimbursements, lost revenue over several months, and additional costs.

SunPower Corp. plunged 35.1% to $3.99 after the company said in a regulatory filing that it is in technical violation of an agreement with a lender for $65.3 million after it failed to file its third quarter results in time.

The company is in negotiation with the lender, but if a waiver is not granted, the company may not have enough cash available for its daily operations.

 

European Markets Turned Lower, Policymakers Stressed Caution On Rate Cuts Expectations 

European markets struggled to advance in Monday's trading, and bond yields hovered near 9-month lows in the region.

Benchmark indexes in Frankfurt, Paris, and London edged lower after cautious comments from Fed and ECB policymakers on rate outlooks.

Policymakers ramped up comments to push back market enthusiasm about possible sooner-than-expected rate cuts as early as March 2024 and stressed that inflation is still too high.

European Central Bank Governing Council member and president of Bundesbank Joachim Nagel said Friday that the central bank has probably concluded its hiking stance, but it's still too early to talk about lower borrowing costs.

Members of the European Central Bank, Philip Lane and Isabel Schnabel are expected to offer their opinions later in the day. 

Deputy Governor of the Bank of England Ben Broadbent, in a speech, highlighted the difficulty of collecting reliable economic data and focused on substantial GDP growth revisions in the 1980s and the current challenges in wage growth data series.

"In particular, official estimates of average wages have been volatile and, in the spring and summer of this year, exhibited somewhat faster growth than other indicators," Broadbent noted in a speech delivered to the London Business School on Monday. 

New York Fed president John C. Williams said talks of rate cuts as early as March seem premature, tempering market bets on imminent rate cuts.

Federal Reserve Bank of Chicago president Austan Goolsbee said in an interview with CBS on Sunday that it is too early to declare victory over inflation and that interest rate decisions would depend on incoming data.

Closer to the region, the Ifo Business Climate indicator for Germany unexpectedly fell to a three-month low of 86.4 in December from the downwardly revised 87.2 in November.

The business mood soured due to the current business conditions and business prospects in the upcoming months.

 

Europe Indexes and Yields

The DAX index decreased 0.6% to 16,650.55, the CAC-40 index eased 0.4% to 7,568.86, and the FTSE 100 index increased 0.5% to 7,614.48.

Bond yields in the eurozone hovered near nine-month lows after the European Central Bank and the Bank of England held their interest rates steady on Thursday.

The yield on 10-year German bonds decreased to 2.01%; French bonds traded lower to 2.54%; the UK gilts eased to 3.64%; and Italian bonds inched lower to 3.71%.

The euro traded higher to $1.092, the British pound inched higher to $1.268, and the U.S. dollar eased to 86.82 Swiss cents.

Brent crude increased $2.13 to $78.67 a barrel, and the Dutch TTF natural gas increased by €2.21 to €35.40 per MWh.

 

Europe Stock Movers

Vodafone Group plc increased 6.4% to 68.88 pence after the iliad Group proposed to merge its Italian business with Vodafone Italia.

The proposal valued Vodafone Italia at €10.45 billion, and Vodafone would obtain 50% of the share capital of NewCo, together with a €6.5 billion cash payment and a €2.0 billion shareholder loan to ensure long-term alignment.

The proposal valued Iliad Italia at €4.45 billion. Iliad would obtain 50% of the share capital of NewCo, together with a €500 million cash payment and a €2.0 billion shareholder loan.

Vodafone’s equity in NewCo at closing was valued at €1.95 billion.

Iliad said that the current proposal values the company at 7.8 times operating earnings, higher than the 7.1 times previously proposed in February 2022.

CRH plc declined 0.5% to 5,280.0 pence after the company partnered with Barro Group to acquire Australian cement manufacturing company Adbri.

The proposal values the Australian company at A$2.1 billion, a 41% premium from the previous closing price.

Barro Group and its associates currently own 42.7% of the company.

Unilever plc decreased 0.08% to 3,752.50 pence after the consumer products company said it agreed to sell its Q-Tips maker Elida Beauty for an undisclosed amount to Boston-based private equity firm Yellow Wood.

Thyssenkrupp Nucera gained 2.4% to €16.40 after the company swung in the fiscal fourth quarter to a net income of €4.3 million compared to a loss of €1.2 million in the previous year.

Software AG added 1.2% to €32.32 after IBM agreed to acquire the company's enterprise tech business for €2.13 billion in cash.